You are the audit manager of Kharee & Co and you are planning the audit of Semut Financials Berhad (Semut ), an e-wallet provider. Kharee & Co has audited Semut for many years.

The directors are planning to list Semut on Bursa Malaysia within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Semut is likely to be quite busy with the listing, he has asked if Kharee & Co can produce the financial statements for the current year.

During the year, the assistant finance director of Semut left and joined Kharee & Co as a partner. It has been suggested that due to his familiarity with Semut , he should be appointed to provide an independent partner review for the audit.

Once Semut obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Kharee & Co is very keen to be appointed to these engagements, however, Semut has implied that in order to gain this work Kharee & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the Bursa listing has been completed, he would like the engagement team to attend a weekend getaway in Langkawi with his team. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.

Required:

a) Explain FOUR (4) ethical threats which may affect the independence of Kharee & Cos audit of Semut Financials. [20 marks]

b). For each threat identified above, explain how it might be reduced to an acceptable level. [20 marks]

Explain in detail each question and in paragraph with examples.